BNP PRIBAS SA, MUMBAI V. ADDL DIT (IT) RG 3, MUMBAI

ITA 1182/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9160 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 17-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M V SONDE
• Keywords: Business income; Retrospective amendment; Non-deduction of tax
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUM BAI , , BEFORE S/SHRI RAJENDRA, A.M. AND SANDEEP GOSAIN,J.M . . .. . / ITA NO. 1182/MUM/2015 / ASSESSMENT YEAR: 2010-11 BNP PARIBAS SA 1, NORTH AVENUE, MAKER MAXITY BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI-400 051. PAN: AAACB 4868 Q VS. THE ADIT INTL TAXN RANGE -3 1ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE MUMBAI-400 038. ( / // / APPELLANT ) ( / RESPONDENT ) . .. . / ITA NO. 1374/MUM/2015 / ASSESSMENT YEAR: 2010-11 THE ADIT INTL TAXN RANGE -3 MUMBAI-400 038. VS. BNP PARIBAS SA MUMBAI-400 051. ( / // / APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SAMUEL DARSE-CIT-DR ASSESSEE BY: SHRI M.V. SONDE / // / DATE OF HEARING: 21/09/2017 !' / DATE OF PRONOUNCEMENT: 16.10.2017 , ,, , 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , ,, , -PER RAJENDRA,AM: CHALLENGING THE ORDERS DATED 27/11/2014 OF CIT(A)-5 5, MUMBAI THE ASSESSEE AND THE ASSESSING OFFICER (A.O.) ARE IN APPEAL FOR THE ABOV E MENTIONED ASSESSMENT YEAR (A.Y). AASSESSEE,ENGAGED IN BANKING OPERATIONS,HAVING HEAD OFFICE IN FRANCE,FILED ITS RETURN OF INCOME ON 15/10/2010 DECLARED TOTAL INCOME AT RS.37 .14 CRORES. THE CASE WAS SELECTED FOR SCRUTINY UPON SERVICE OF NOTICE U/S. 143(2) DATED 0 7/09/2011. THE A.O COMPLETED ASSESSMENT U/S. 143(3) R.W.S. 144C(3) OF THE ACT VIDE ORDER DA TED 30/04/2014 AND DETERMINED THE TOTAL INCOME AT RS.38.45 CRORES. 2. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) AND THE DEPARTMENTAL REPRESENTATIVE (DR) FAIRLY CONCEDED TH AT ISSUE RAISED BY THE ASSESSEE AS WELL AS THE AO HAVE BEEN DEALT WITH AND DECIDED BY THE T RIBUNAL WHILE ADJUDICATING THE APPEALS FOR THE EARLIER YEARS. ITA/1182/MUM/2015: 3. THE SOLITARY GROUND OF APPEAL, RAISED BY THE ASSESS EE IS ABOUT NOT ACCEPTING ITS CLAIM ABOUT RATE OF TAXES. THE ASSESSEE HAD OBJECTED TO THE R ATE OF TAX APPLICABLE TO DOMESTIC COMPANIES 1182&1374/M/15 M/S.BNP PARIBAS SA 2 AND CO-OPERATIVE BANKS WERE ALSO APPLICABLE TO IT I N ACCORDANCE WITH THE PROVISIONS OF ARTICLE-26 (NON DISCRIMINATION) OF INDO FRENCH TAX TREATY. WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY 1996-97 (ITA/2760/MUM/2000 DT.28/ 8/2013) THE TRIBUNAL HAS DECIDED THE ISSUE AS UNDER : 4.THE THIRD ISSUE IS RELATING TO TAX RATE. THE ASS ESSEE HAS SUBMITTED THAT THE TAX LEVIED AT HIGHER RATE IN THE CASE OF FOREIGN COMPANIES IS DIS CRIMINATORY IN NATURE AND, ACCORDINGLY, RELIEF HAS BEEN SOUGHT ON THIS ACCOUNT. THE CLAIM H AS BEEN REJECTED BY THE AUTHORITIES BELOW. 4.1 WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. W E FIND THAT THIS ISSUE HAS ALREADY BEEN EXAMINED BY THE TRIBUNAL IN THE CASE OF M/S BNP PAR IBAS, DECIDED IN ITA NOS. 4601 & 4602/ M/ 2004,VIDE ORDER DATED 1-7-2013. IN THAT CASE ALS O THE TAX RATE APPLIED IN THE CASE OF THE ASSESSEE, A FOREIGN COMPANY WAS 48% COMPARED TO 38% APPLIED IN CASE OF DOMESTIC COMPANIES. THE ASSESSEE HAD ARGUED THAT IT WAS DISC RIMINATORY AND NOT IN ACCORDANCE WITH LAW. REFERENCE WAS MADE TO NON-DISCRIMINATION CLAUS E IN THE TREATY, AS PER WHICH THERE SHOULD NOT BE ANY DISCRIMINATION BETWEEN THE DOMEST IC AND THE NON-RESIDENT COMPANY. THE TRIBUNAL, HOWEVER, REFERRED TO THE EXPLANATION IN T HE SECTION 90, INSERTED IN THE IT ACT WITH RETROSPECTIVE EFFECT FROM 01-04- 1962 AS PER WHICH THE HIGHER TAX RATE IN CASE OF FOREIGN COMPANY, SHOULD NOT BE REGARDED AS VIOLATION OF NON -DISCRIMINATION CLAUSE. THE TRIBUNAL ALSO REFERRED TO THE JUDGMENT OF THE HONBLE SUPREM E COURT IN THE CASE OF ACIT VS. J.K. SYNTHETICS. THE TRIBUNAL ACCORDINGLY, REJECTED THE GROUND RAISED BY THE ASSESSEE. THE FACTS IN THE PRESENT APPEAL ARE IDENTICAL AND, THEREFORE, RE SPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S BNP PARIBAS(SUPRA), WE DISMISS THIS GROUND RAISED BY THE ASSESSEE. 5. RESULTANTLY, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED. FOLLOWING THE ABOVE, EFFECTIVE GROUND OF APPEAL RA ISED BY THE ASSESSEE IS DECIDED AGAINST IT. ITA NO.1374/MUM/2015: 4. FIRST GROUND OF APPEAL, RAISED BY AO IS PAYMENT MAD E BY INDIA BRANCH TO OVERSEAS BRANCH / HO.THE ISSUE IS ABOUT DATA PROCESSING FEES PAID B Y INDIAN BRANCH OFFICE OF THE ASSESSEE TO ITS SINGAPORE BRANCH TO THE TUNE OF RS.13,17,18,199 /- UNDER ARTICLE-13 OF THE INDIA FRANCE TAX TREATY. WE FIND THAT WHILE DECIDING THE APPEAL FOR AY -2009-10 (ITA/3541/MUM/2014 ; DTD.31.03.2016) THE TRIBUNAL HAS DECIDED THE ISSUE AGAINST THE AO AS UNDER:- 5. GROUND NO.3 PERTAINS TO SUBJECTING THE DATA PROC ESSING CHARGES PAID TO THE SINGAPORE BRANCH OF THE ASSESSEE AMOUNTING TO RS.132,335,594/ - APPLYING THE PROVISIONS OF ARTICLE 13(ROYALTIES, FEES FOR TECHNICAL SERVICES AND PAYME NTS FOR USE OF EQUIPMENT) OF THE INDIA- FRANCE TAX TREATY. THIS ISSUE IS ALSO COVERED BY TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2001-02 TO 2003-04 WHEREIN INTEREST PAI D BY ASSESSEE TO HEAD OFFICE/OVERSEAS BRANCHES WAS HELD TO BE NOT LIABLE TO TAX, FOLLOWIN G WAS THE PRECISE OBSERVATION OF THE TRIBUNAL IN ITS ORDER DATED 20-6-2012 FOR AY 2002- 03:- 3. THE SOLITARY ISSUE INVOLVED IN THE APPEAL OF THE ASSESSEE FOR, THE A.Y. 2002-03 RELATES TO THE ADDITION OF RS.1,48,30,613/- MADE BY THE A.O. AND C ONFIRMED BY THE LD. CIT (A) ON ACCOUNT OF 'INTEREST' PAID BY THE INDIAN BRANCHES OF THE AS SESSEE BANK TO ITS HEAD OFFICE AND OTHER OVERSEAS BRANCHES. 4. THE ASSESSEE, IN THE PRESENT CASE IS A COMMERCIA L BANK HAVING ITS HEAD OFFICE IN FRANCE. IT CARRIES ON THE NORMAL BANKING ACTIVITIES INCLUDING FINANCING OF FOREIGN TRADE AND FOREIGN EXCHANGE TRANSACTIONS IN INDIA THROUGH ITS EIGHT BR ANCHES SITUATED AT MUMBAI, NEW DELHI, KOLKATA, BANGALORE, PUNE, AHMEDABAD, CHENNAI AND HY DERABAD. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2002-03, THE INDIAN BRANCHES OF TH E ASSESSEE BANK HAVE PAID TOTAL INTEREST OF RS.1,48,30,613/- TO ITS HEAD OFFICE AND OVERSEAS BR ANCHES AND THE SAME WAS CLAIMED AS A DEDUCTION WHILE DETERMINING THE PROFITS ATTRIBUTABL E TO INDIAN BRANCHES, WHICH WAS 1182&1374/M/15 M/S.BNP PARIBAS SA 3 CHARGEABLE TO TAX IN INDIA. THE SAID INTEREST WAS T REATED BY THE A.O. AS INCOME OF THE ASSESSEE'S HEAD OFFICE/OVERSEAS BRANCHES CHARGEABLE TO TAX IN INDIA. THIS DECISION OF THE A.O. WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(A) AND THE CONTENTION RAISED BEFORE THE LD. CLT (A) IN THIS REGARD WAS TH AT THE HEAD OFFICE OF THE ASSESSEE BANK AS WELL AS ALL ITS BRANCHES BEING THE SAME PERSON AND ONE TAXABLE ENTITY AS PER THE INDIAN INCOME- TAX ACT, INTEREST PAID BY INDIAN BRACHES TO HEAD OF FICE AND OTHER OVERSEAS BRANCHES WAS PAYMENT TO SELF, WHICH DID NOT GIVE RISE TO ANY INC OME AS PER THE INCOME-TAX ACT. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON BEHALF O F THE ASSESSEE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SIR KIKABHAI PREMCHAND VS. CT (CENTRAL) 24 ITR 506 AS WELL AS THE DECISION OF KOLKATA SPECIAL BENCH OF THE ITAT I N THE CASE OF ABN AMRO BANK NV VS. ASST. DIRECTOR OF INCOME-TAX 98 TTJ 295. THE CONTEN TION OF THE ASSESSEE, HOWEVER, WAS NOT ACCEPTED BY THE LD. CIT (A) AND RELYING ON THE DECI SION OF MUMBAI BENCH OF THE ITAT IN THE CASE OF DRESDNER BANK AG VS. ADD1. CIT 108 ITD 375, HE HELD THAT THE INTEREST PAID BY THE INDIAN BRANCHES OF THE ASSESSEE BANK TO ITS HEAD OF FICE AND OVERSEAS BRANCHES WAS CHARGEABLE TO TAX IN INDIA. ACCORDINGLY, THE ADDITION MADE BY THE A.O. ON THIS ISSUE WAS CONFIRMED BY THE LD. CIT(A). 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SI DES, THE ISSUE INVOLVED IN THIS APPEAL OF THE ASSESSEE NOW STANDS SQUARELY COVERED BY THE DECISIO N OF SPECIAL BENCH OF THE ITAT IN THE CASE OF SUMITOMO BANKING CORP. MUMBAI WHEREIN IT WA S HELD, AFTER ELABORATELY DISCUSSING THE LEGAL POSITION EMANATING FROM THE INTERPRETATIO N OF RELEVANT PROVISIONS OF INDIAN INCOME- TAX ACT AS WELL AS TREATY, THAT INTEREST PAID TO TH E HEAD OFFICE OF THE ASSESSEE BANK AS WELL AS ITS OVERSEAS BRANCHES BY THE INDIAN BRANCH CANNOT BE TA XED IN INDIA BEING PAYMENT TO SELF WHICH DOES NOT GIVE RISE TO INCOME THAT IS TAXABLE IN IND IA AS PER THE DOMESTIC LAW OR EVEN AS PER THE RELEVANT 'TAX TREATY'. RESPECTFULLY FOLLOWING THE S AID DECISION OF SPECIAL BENCH OF THE ITAT I WHICH IS DIRECTLY APPLICABLE IN THE PRESENT CASE, W E DELETE THE ADDITION OF RS.1,48,30,613/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) O N THIS ISSUE AND ALLOW THE APPEAL OF THE ASSESSEE. 5.1THE ISSUE HAS ALSO BEEN DEALT BY THE SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE OF SUMITOMO MITSUI BANKING CORPORATION (SUPRA),WHEREIN THE OBSE RVATION OF THE BENCH AT PARA 88 IS AS UNDER :- 88. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND T HE LEGAL POSITION EMANATING FROM THE INTERPRETATION OF THE RELEVANT PROVISIONS OF DO MESTIC LAW AS WELL AS THAT OF THE TREATY AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT ALTHOUGH INTEREST PAID TO THE HEAD OFFICE OF THE ASSESSEE BANK BY ITS INDIAN BRANCH WH ICH CONSTITUTES ITS PE IN INDIA IS NOT DEDUCTIBLE AS EXPENDITURE UNDER THE DOMESTIC LA W BEING PAYMENT TO SELF, THE SAME IS DEDUCTIBLE WHILE DETERMINING THE PROFIT ATTRIBUT ABLE TO, THE PE WHICH IS TAXABLE IN INDIA AS PER THE PROVISIONS OF ART. 7(2) AND 7(3) O F THE INDO-JAPANESE TREATY READ WITH, PARA 8 OF THE PROTOCOL WHISH ARE MORE BENEFICIAL TO THE ASSESSEE, THE SAID INTEREST, HOWEVER, CANNOT BE TAXED IN INDIA IN THE HANDS OF A SSESSEE BANK, A FOREIGN ENTERPRISE BEING PAYMENT TO' SELF WHICH CANNOT GIVE RISE TO IN COME THAT IS TAXABLE IN INDIA AS PER THE DOMESTIC LAW, EVEN OTHERWISE, THERE IS NO EXPRE SS PROVISION CONTAINED IN THE RELEVANT TAX TREATY WHICH IS CONTRARY TO THE DOMEST IC LAW IN INDIA ON THIS ISSUE, THIS POSITION APPLICABLE IN THE CASE' OF INTEREST PAID B Y INDIAN BRANCH OF A FOREIGN BANK TO ITS HEAD OFFICE EQUALLY HOLDS GOOD FOR THE PAYMENT OF INTEREST MADE BY THE INDIAN BRANCH OF A FOREIGN BANK TO ITS BRANCH OFFICES ABRO AD AS THE SAME STANDS ON THE SAME FOOTING AS THE PAYMENT OF INTEREST MADE TO THE HEAD OFFICE, AT THE TIME OF HEARING BEFORE US, THE LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE ALSO NOT MADE ANY SEPARATE SUBMISSIONS ON THIS ASPECT OF THE MATTER S PECIFICALLY. HAVING HELD THAT THE INTEREST PAID BY THE INDIAN BRANCH OF THE ASSESSEE BANK TO ITS HEAD OFFICE AND OTHER BRANCHES OUTSIDE INDIA IS NOT CHARGEABLE TO TAX IN INDIA, IT FOLLOWS THAT THE PROVISIONS OF S. 195 WOULD NOT BE ATTRACTED AND THERE BEING NO FAILURE TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT OF INTEREST MADE BY THE PE, T HE QUESTION OF DISALLOWANCE OF THE SAID INTEREST BY INVOKING THE PROVISIONS OF S. 40 ( A)(I) DOES NOT ARISE, ACCORDINGLY WE ANSWER QUESTION NO. 1 REFERRED TO THIS SPECIAL BENC H IN THE NEGATIVE I.E. IN FAVOUR OF 1182&1374/M/15 M/S.BNP PARIBAS SA 4 THE ASSESSEE AND QUESTION NO. 2 IN AFFIRMATIVE I.E. AGAIN IN FAVOUR .OF THE ASSESSEE. AS THE FACTS AND CIRCUMSTANCES OF THE CASE DURING T HE YEAR UNDER CONSIDERATION ARE PERI MATERIA, WHERE PAYMENT MADE BY ASSESSEE TO SIN GAPORE BRANCH FOR DATA PROCESSING, WAS BROUGHT TO TAX. RESPECTFULLY FOLLOW ING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AS WELL AS THE ORDER OF THE SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE OF SUMITOMO MITSUI BANKING CORPORATION (SUPRA) , WE HOLD THAT THE DEPARTMENT WAS NOT JUSTIFIED IN TAXING THE DATA PROCESSING CHA RGES TO THE SINGAPORE BRANCH OF THE ASSESSEE BY APPLYING THE PROVISIONS OF ARTICLE 13 O F THE INDIA-FRANCE TAX TREATY 13. IN EFFECT THUS, REVERSING THE STAND OF THE DRP, THE COORDINATE BENCH HAS COME TO THE CONCLUSION THAT THE PAYMENT ON ACCOUNT OF DATA PROC ESSING CHARGES PAID TO BNP SINGAPORE CANNOT BE TAXED IN THE HANDS OF THE ASSES SEE. THE CONCLUSION ARRIVED AT BY THE COORDINATE BENCH, WHATEVER MAY HAVE BEEN THE PATH T RAVERSED BY THE COORDINATE BENCH TO REACH THIS POINT, ARE THE SAME AS ARRIVED AT BY US. OF COURSE, OUR REASONS ARE DIFFERENT, AS SET OUT EARLIER IN THIS ORDER, BUT THAT DOES NOT RE ALLY MATTER AS ON NOW. WE FULLY AGREE WITH THE CONCLUSIONS ARRIVED AT BY THE COORDINATE BENCH. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 1 3,10,97,790. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 14. GROUND NO. 2 IS THUS ALLOWED. 6. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09. RESPECTFULLY F OLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWAN CE OF RS.18,53,83,446/-. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. RESPECTFULLY FOLLOWING THE ABOVE FIRST GROUND IS DI SMISSED. 4.1. SECOND GROUND OF APPEAL ABOUT INTEREST PAID BY IND IAN BRANCH OFFICES TO THE ASSESSEE , AMOUNTING TO RS.4,19,26,420/-.IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL IN AY 2005-06(ITA/339/MUM/2010 ;16 /07/2014) WHICH READS AS UNDER :- 4. IN GROUND NO.2, THE ASSESSEE IS AGGRIEVED BY THE ACTION OF THE LOWER AUTHORITIES FOR TAXING THE INTEREST PAID BY THE INDIAN BRANCH OF THE ASSES SEE TO ITS HEAD OFFICE AND OVERSEAS BRANCHES AMOUNTING TO RS.3,09,48,018/-, APPLYING THE PROVISI ONS OF ARTICLE 12 (INTEREST OF INDIAFRANCE TAX TREATY). IN THIS REGARD, LEARNED AR PLACED ON R ECORD THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS. 2001-02 TO 2002-03 . IN AY 2001-02, THE TRIBUNAL HAS DEALT WITH THE ISSUE AT PARA 13, 14, 15 & 16 AT PAGE 5 AN D DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. SIMILARLY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE AY 2002-03 & 2003-04 DECIDED THE ISSUE AT PAGE 2, 3 & 6 AT PARA 3,4,5, & 13. LEA RNED AR ALSO PLACED RELIANCE ON THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF SUMIT OMO MITSUI BANKING CORPORATION VS. DDIT(IT), REPORTED IN (2012) 145 TTJ (MUMBAI)(SB) 6 49, WHEREIN EXACTLY SIMILAR ISSUE HAS BEEN DEALT AT PARA 88 PAGE 700 & 701. 4.1 ON THE OTHER HAND, IT WAS CONTENDED BY THE LEAR NED DR THAT MUTUALITY ISSUE WAS NOT ARGUED BEFORE THE LOWER AUTHORITIES, WHETHER TRANSA CTION IS COVERED BY THE SPECIAL BENCH, THE ISSUE OF MUTUALITY WAS NOT CONSIDERED BY THE SPECIA L BENCH. HE ALSO RELIED ON THE OBSERVATION MADE BY HONBLE SUPREME COURT IN THE CASE OF BANGAL ORE CLUB VS. CIT, REPORTED IN (2013) 350 ITR 509 (SC) AND OUR ATTENTION WAS INVITED TO P ARA 23. IT WAS CONTENDED BY THE LEARNED DR THAT TAKING LOAN FROM HO AT INTEREST ITSELF SHOW S THAT BORROWING IS ON COMMERCIAL BASIS, THEREFORE, THERE IS NO QUESTION OF APPLYING PRINCIP LE OF MUTUALITY. HE FURTHER CONTENDED THAT IF PRINCIPLE OF MUTUALITY IS APPLIED IN ALL THE CASES, SECTION 44C WILL BE REDUNDANT. THE CITDR MR. AJAY KUMAR SHRIVASTAVA FURTHER CONTENDED THAT T HE ITAT SB IN CASE OF SUMITOMO MITSUI BANKING CORPORATION 136 ITD 66(MUM)(SB) HAS HELD TH AT THE INTEREST RECEIVED BY HO(GE) IS NOT TAXABLE IN HANDS OF GE IN INDIA UNDER DOMESTIC LAW ON PRINCIPLES OF MUTUALITY AS THE INTEREST PAID BY PE TO GE IS PAYMENT TO SELF. AS PE R LEARNED DR, BEFORE THE SB, THE COUNSELS FROM BOTH THE SIDES DID NOT DISPUTE THE POSITION TH AT SUCH INTEREST PAYMENTS WERE COVERED BY PRINCIPLES OF MUTUALITY BEING PAYMENT TO SELF, THOU GH THE REVENUE ARGUED THAT FOR PURPOSE OF 1182&1374/M/15 M/S.BNP PARIBAS SA 5 TAXATION UNDER DOMESTIC LAWS ALSO THE PE AND GE SHO ULD BE TREATED AS SEPARATE ENTITIES. THIS ARGUMENT WAS REJECTED BY ITAT ON GROUNDS THAT UNDER THE DOMESTIC LAW THERE IS ONLY ONE ASSESSABLE ENTITY I.E. GE AND PE IS NOT AN INDEPEND ENT PERSON AND IT IS PART OF GE. 4.2 IN VIEW OF THE ABOVE, LEARNED CITDR STRONGLY DE FENDED THE ORDER OF THE AO ON THE PLEA THAT THE DECISION OF SB HINGES ON THE ASSUMPTION TH AT THE IMPUGNED TRANSACTIONS ARE COVERED BY PRINCIPLES OF MUTUALITY BEING PAYMENT TO SELF WH EREAS THE NON APPLICABILITY OF MUTUALITY TO SUCH TRANSACTION WAS NEITHER ARGUED BY ANY SIDE NOR WAS ANY OBJECTION RAISED TO SUCH ASSUMPTION. 4.3 BY REFERRING TO THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF BANGALORE CLUB (SUPRA), LD. DR SUBMITTED THAT FOLLOWING PRINCIPLES WERE FOLLOWED BY APEX COURT IN BANGALORE CLUB(SUPRA) WITH REGARD TO APPLICABILITY OF PRINCIP LES OF MUTUALITY: (I) THERE SHOULD BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PART ICIPATORS. (II) THE MUTUAL ACTIVITY IS RESTRICTED TO WITHIN MEMBERS OF MUTUAL GROUP (CONTR IBUTORS AND PARTICIPATORS) AND NOT WITH OUTSIDERS. (III) ONLY THAT SURPLUS WHICH IS EARNED OUT OF THE TRANSACTIONS BETWEEN THE CLOSED GROUP OF MEMBERS ONLY AS A CLASS IS EXEMPT BUT INCO ME ARISING FROM OPERATIONS WITH THIRD PARTIES WAS OUTSIDE OF THE MUTUALITY, RUPTURING THE 'PRIVITY OF MUTUALITY', CONSEQUENTLY, VIOLATING THE ONE TO ONE IDENTITY BETWEEN THE CONTR IBUTORS AND PARTICIPATORS. (IV) THE TRANSACTIONS RESULTING IN INCOME ARE NOT IN NATURE AKIN TO BUSINESS, OR TAINTED WITH COMMERCIALITY. (V) IT CANNOT BE SAID THAT INCORPORA TION WHICH BRINGS INTO BEING A LEGAL ENTITY SEPARATE FROM ITS CONSTITUENT MEMBERS IS TO BE DISR EGARDED ALWAYS AND THAT THE LEGAL ENTITY CAN NEVER MAKE A PROFIT OUT OF ITS OWN MEMBERS ... ' THE PRINCIPLE THAT NO ONE CAN MAKE A PROFIT OUT OF HIMSELF IS TRUE ENOUGH BUT MAY IN ITS APPLICATION EASILY LEAD TO CONFUSION, AT WHAT POINT, DOES THE RELATIONSHIP OF MUTUALITY END AND T HAT OF TRADING BEGIN' IS A DIFFICULT AND VEXED QUESTION. AS PER LEARNED DR THE NEXT TEST OF MUTUAL ITY TO APPLY IS THAT ALL TRANSACTIONS MUST BE WITHIN THE MEMBERS OF MUTUAL GROUP. THE ASSESSEE BE ING IN BANKING BUSINESS IS DEALING WITH THIRD PARTIES AS WELL AS ITS OWN BRANCHES TO EARN I TS BUSINESS INCOME. THE MONEY ADVANCED BY BO TO HO OR HO TO BO ARE DURING THE COURSE AND PART OF REGULAR BANKING ACTIVITIES WHICH ARE ALSO CARRIED IN SIMILAR FASHION WITH THIRD PART IES. HENCE THESE ARE COMMERCIAL TRANSACTIONS NOT LIMITED AMONGST THE MUTUAL ENTITIE S BUT EXTENDED TO THIRD PARTIES ALSO AND THE PRIVITY OF MUTUALITY GETS DILUTED FOR THIS REASON. AGAIN REFERRING TO THE DECISION OF HONBLE SUPREME COURT, LEARNED DR CONTENDED THAT ALL TRANSA CTIONS BETWEEN LEGAL ENTITY AND ITS CONSTITUENT MEMBERS (SUCH AS BO AND HO) ARE NOT ALW AYS COVERED BY PRINCIPLES OF MUTUALITY. THE PRINCIPLE THAT NO ONE CAN TRADE WITH HIMSELF IS NOT UNIVERSALLY APPLICABLE. IT MIGHT HERE BE POINTED OUT THAT IT HAS BEEN HELD BY THE HOUSE OF L ORDS IN SHARKEY VS. WERNHER (1956) AC 58 ; (1956) 29 LTR 962 (HL) THAT THE GENERAL PROPOSITI ON THAT NO ONE COULD TRADE WITH HIMSELF AND MAKE IN ITS TRUE SENSE OR MEANING TAXABLE PROFI TS BY DEALING WITH HIMSELF IS NOT UNIVERSALLY TRUE AND THAT THERE ARE SITUATIONS IN W HICH A MAN COULD BE SAID TO MAKE A PROFIT OUT OF THE CONSUMPTION OF HIS OWN GOODS. THE HONBL E SUPREME COURT IN BANGALORE CLUB (SUPRA) ALSO BAS HELD THAT THIS MAXIM IS NOT UNIVER SALLY APPLICABLE. WHEN THE BUSINESS ACTIVITY OF BANKING BY ASSESSEE BANK COMPRISES OF CONTINUOUS /INTEGRATED INFLOWS AND OUTFLOWS OF MONEY WITH SEVERAL ENTITIES INCLUDING CUSTOMERS, OT HER BANKS AND ITS OWN BRANCHES, THEN THE PROFIT OF THE BANKS BUSINESS WOULD DEPEND ON NET I NFLOWS OUT OF ALL OPERATIONS AND IT CANNOT BE SAID THAT A PART OF SUCH TRANSACTIONS ARE GOVERN ED BY MUTUALITY BY DISINTEGRATING SOME OF THE CONSTITUENT TRANSACTIONS BETWEEN BO AND HO OUT OF THE ONE COMPOSITE BUSINESS OF BANKING AND THEN TO SAY THAT SUCH TRANSACTIONS ARE GOVERNED BY MUTUALITY. WHEN THE TOTAL PROFIT OF A BANK REPRESENTS THE RESULTANT AGGREGATI ON OF DIFFERENT ITEMS OF ACTIVITY THEN HOW COULD IT BE SAID THAT THE PROFIT FROM EACH ITEM OF ACTIVITY (INCLUDING FROM ACTIVITY BETWEEN BO & HO) WHICH MAKES UP THAT TOTAL IS ONLY A NOTIONAL ONE TO THE EXTENT IT ARISES FROM TRANSACTIONS BETWEEN BO & HO AND NOT THE ACTUAL OR REAL PROFIT. IF THE PROFITS FROM MULTIPLE ACTIVITY AS A BANKING BY BO OR HO IS CONSIDERED IN ITS ENTIRETY AS TWO INDEPENDENT OPERATING ENTITIES, THEN THE PRINCIPLE THAT NO ONE CAN TRADE WITH ITSELF WILL NOT ARISE AT ALL. THE APPLICABILITY OF PRINCIPLE OF MUTUALITY HAS TO BE T ESTED QUA THE ENTIRE ACTIVITY OF BANKING BUSINESS AND NOT QUO. THE PART OF BUSINESS ACTIVITY COMPRISING OF TRANSACTIONS BETWEEN BO AND HO ONLY WHEN THE ULTIMATE BUSINESS PROFIT IS SUM TO TAL OF ALL THE ACTIVITIES CARRIED BY THE BO OR HO IN ITS JURISDICTION OF OPERATION OF BANKING B USINESS, THE PRINCIPLE OF TRADING WITH ONE 1182&1374/M/15 M/S.BNP PARIBAS SA 6 SELF HAS TO BE SEEN W. R. T. WHOLE ACTIVITY COMPRIS ING OF THE BUSINESS AND NOT BY DISINTEGRATING VARIOUS INTEGRATED OPERATIONS OF A COMMON BUSINESS. 4.5 WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF RIVAL PARTIES, GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AS WELL AS ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE AND ALSO THE ORDER OF THE SPECIAL BENCH IN THE CASE OF SUMITOMO MITSUI BANKING CORPORATION (SUPRA). DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BANGALO RE CLUB (SUPRA) IS DISTINGUISHABLE ON FACTS WHERE INTEREST INCOME WAS EARNED BY ASSESSEE CLUB FROM THIRD PARTY I.E. BANKS WITH WHICH DEPOSIT WAS MADE. HOWEVER, IN THE INSTANT CAS E HO HAS GIVEN FUNDS TO ITS BRANCH I.E. ASSESSEE. FOLLOWING WERE THE OBSERVATIONS AT PARA O F SPECIAL BENCH 88 :- XXXXX 4.6 IN VIEW OF THE ABOVE, SINCE THE ISSUE UNDER CON SIDERATION IS COVERED NOT ONLY BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2 001-02 TO 2003-04 BUT ALSO BY THE ORDER OF THE ITATS SPECIAL BENCH IN THE CASE OF SUMITOMO MI TSUI BANKING CORPORATION (SUPRA), WE HOLD THAT THE DEPARTMENT WAS NOT JUSTIFIED IN SUBJE CTING TO TAX THE INTEREST PAID BY THE INDIAN BRANCH OF THE ASSESSEE TO ITS HEAD OFFICE AND OVERS EAS BRANCHES APPLYING THE PROVISIONS OF ARTICLE 12 OF INDIA-FRANCE TAX TREATY. CONSIDERING THE ABOVE SECOND GROUND IS DECIDED AG AINST THE AO. AS A RESULT APPEALS FILED BY THE ASSESSEE AND THE A O STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH OCTOBER , 2017. 16 2017 SD/- SD/- ( /SANDEEP GOSAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; #$ /DATED : 16.10.2017 . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR L BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.